Slowing UK economic growth rattles pound

A handful of trades have been closed in the last 24hrs with some modest profits off short GBP. Long Euro is also yielding results but a short US index trade continues to drag on performance.

We have a relatively quiet end to the week with economic data centred very much around releases that are expected from the US. There may be a temptation to derisk some positions with a number of key markets closed on Monday too, whilst any policy developments from the G7 meeting which is convening in Sicily today could again cause a degree of volatility.

Sterling fell back across the board yesterday morning after UK Q1 GDP was revised lower, pushing cable back to levels not seen in 10 days whilst EUR/GBP found highs last tested almost two months ago. There’s very little of note due for release from the UK today so further direction is likely to be seen off the back of the mounting array of risk that’s facing the economy. The upcoming election is likely to be closer than had first been imagined as the incumbent Conservative party see their ratings fall, whilst the Brexit negotiations also provide another slug of uncertainty for the market.

There’s a run of high profile prints due from the US today including GDP revisions, durable goods orders and the Michigan consumer sentiment reading. With EUR/USD having given up some of its recent gains, any weakness here could be sufficient to drive the common currency back above the 1.1250 level and towards recent highs. There may be some questions over the timing of any tapering from the ECB but with the June meeting less than two weeks away, some posturing ahead of this is to be expected.

Opec released its verdict over production quota cuts yesterday and although this was essentially as expected, the market has given the news a rather cool reception, with the underlying price of WTI crude crashing straight back through the $50 level. This reflects the fact that the cut isn’t going to make much of an impression on the uplift in US shale oil production, although with storage space across the Atlantic running thin on the ground, this once again flags the idea of trading the Brent-WTI spread as being a potentially useful strategy in the coming months.

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27 June 2017

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